Australia's manufacturing report for June was a horror show

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Activity across Australia’s manufacturing sector contracted sharply in June with the Ai Group’s manufacturing PMI gauge sliding 8.1 points to 44.2.

The figure, the lowest seen since July 2013, was the steepest monthly decline recorded since December 2009.

Reflective of the horrible headline print, six of the survey’s seven subindices contracted during the month with new orders, production, employment, sales and supplier deliveries falling by 10.6, 9.3, 5.9, 6.9 and 9.7 points respectively. Manufacturing exports, at 50.3, down 8.1 points on May, was the only subindex to recorded growth during the month. The graph below reveals the scale of deterioration recorded in June.

From an industry-specific perspective four of eight sectors saw activity expand during the month with food, beverages & tobacco (up 0.7 points to 60.5), wood and paper products (up 4.5 points to 63.8), textiles, clothing and furniture (up 5.8 points to 52.5) and printing and recorded media all improving on levels seen in May. On the other side of the ledger machinery equipment (down 2.0 points to 41.1) and metal products (down 0.8 points to 39.6) sub-sectors continued long-term contraction, while non-metallic mineral products (down 3.6 points to 46.6) ended seven months of expansion, according to the report.

Commenting on the lacklustre result, Ai Group chief executive Innes Willox suggests the progressive closure of Australia’s automotive industries, along with subdued business investment in machinery and equipment, is overriding the effects of the recent federal budget and interest rate cuts from the RBA.

“While the lower dollar continues to support exports, local demand remains generally weak, apart from a few bright spots in food and beverages and housing-related manufactures. In particular, the progressive closure of local automotive assembly is now having a greater impact on downstream demand. Further declines in mining and other business investment in machinery and equipment, and a still subdued economic outlook, are weighing more heavily on the manufacturing sector than any positive effects of the Federal Budget and recent interest rate cuts.”

Whatever the reasoning behind the steep contraction, it’s a horrible report. Let’s hope the services and construction PMI gauges for June, released in coming days, aren’t reflective of this result.

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